BERKLEY W R CORP(WRB)Q2 2026 法說會逐字稿

Ladies and gentlemen, thank you for joining us, and welcome to the W. R. Berkley Corporation's Second Quarter 2026 Earnings Call. This conference call is being recorded. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press 1 to raise your hand and 1 to withdraw your question. The speakers' remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words including, without limitation, beliefs, expects, or estimates. We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates, or expectations contemplated by us will, in fact, be achieved. Please refer to our annual report on Form 10-K for the year ended December 31, 2025, and other filings made with the SEC for a description of the business environment in which we operate and the important factors that may materially affect our results. W. R. Berkley Corporation is not under any obligation and expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise. I would like to turn the call over to Mr. William R. Berkley. Please go ahead, sir.

Thank you very much, and let me echo your welcome to all participants. Thank you for finding time in your schedule to join us today. I am joined on this end of the phone by Richard Mark Baio, and we are going to follow our typical agenda where, momentarily, Richard is going to walk us through some highlights from the quarter. I will then follow with a few of my own observations, and then the two of us will be available to answer any questions that may come up. Before I hand it over to Richard, I would like to take a moment on behalf of my colleagues, my family, and myself to express our gratitude for the very kind outreach and support we have received on the heels of the loss of our founder, Bill Berkley. His extraordinary contributions to society, our industry, and our company cannot be overstated. His spirit, values, and priorities remain foundational to who we are and how we operate as a team. One of his great achievements while leading the company was the institutionalization of the business and making clear that this business is a team sport, not an individual one. While his vision and character remain central to our foundation, the performance and success of this company continue to be a reflection of the hard work and commitment of thousands of people that make up this team. Thank you again to all of those who have been so supportive during this difficult moment. Richard, if you would, please.

Of course. Thank you. Good evening, everyone. Operating earnings per diluted share grew 21% to $1.27, or $497 million, resulting in an annualized return on beginning-of-year equity of 20.5%. The company's second-best quarterly pretax underwriting income was $318 million, and record quarterly pretax net investment income of $419 million contributed to the excellent second-quarter results. We continue to generate meaningful excess capital, as evidenced by total capital returned to shareholders of $334 million through regular and special dividends, as well as share repurchases. While there is no predetermined amount of capital to be returned each quarter, this amount is consistent with what we did in the first quarter. Underwriting performance yielded a current accident year combined ratio, excluding catastrophe losses, of 88.1% and a calendar year combined ratio of 90%. Catastrophe losses in the current accident year decreased $37 million to $62 million in the second quarter of 2026, or 2.0 loss ratio points, compared with 3.2 loss ratio points in the prior year's quarter. The current accident year loss ratio excluding catastrophes was 59.6%, compared with 59.9% in the prior year. The overall expense ratio is flat quarter over quarter at 28.5% and remains below our previously shared expectations—comfortably below 30% but increasing modestly over 2025 barring material changes in the marketplace. Drilling down by segment, Insurance reported growth in gross premiums written of 5.4% to a record $3.8 billion, and net premiums written increased 3.7%, also to a record $3.1 billion. The current accident year loss ratio excluding catastrophes is 61%, comparable to the first quarter this year. The expense ratio of 28.3% was flat over the prior year, bringing our current accident year combined ratio, excluding catastrophes, to 89.3%. The Reinsurance and Monoline Excess segment continued to experience heightened competition in both property and casualty lines, which resulted in a decrease in net premiums written to $36 million. Having said that, the underlying performance of the business benefited in the quarter from lower catastrophe and non-cat property losses, giving rise to a current accident year combined ratio excluding catastrophes of 78.7%. Turning to investments, net invested assets have grown to $34.2 billion. Strong operating cash flows have contributed to the growth despite the significant capital return to investors. Over the prior 12 months, we have returned capital of more than $1.3 billion, or approximately 14% to stockholders' equity, and nearly 70% of the first half of 2026 earnings. Strong second-quarter operating cash flow was $800 million and will continue to contribute to the growth in net investment. Investment income from the core portfolio grew 13% over the prior year to $371 million, and investment funds performed well, growing 5.6% to $28.8 million. The credit quality of our portfolio remains very strong at AA-, with the duration on our fixed maturity portfolio, including cash and cash equivalents, increasing in the second quarter to 3.2 years, which remains below the average life of our insurance reserves. The effective tax rate of 21.4% was below our normalized run rate of 23%, plus or minus, due to the mix of earnings from foreign operations taxed at higher marginal tax rates, as well as the nonrecurring utilization of certain tax credits. Stockholders' equity increased to a record of more than $9.8 billion, and capital returned to shareholders comprised regular and special dividends of $223 million as well as share repurchases of approximately $111 million. With that, I will turn it back to you, Robert.

Okay. Richard, thank you very much. A couple of quick additional comments from me, and then we will open it up for questions. Starting on the macro side with market conditions, it is increasingly a fragmented market by product line, and that places greater emphasis and value on the combination of expertise and discipline—key ingredients for cycle management regardless of where any product may be in the cycle. Let me flag a few areas where we are seeing headwinds, and then pivot to encouraging areas. First, we continue to have great concern around much of the MGU model and how it is participating in the marketplace. We have always had questions around delegated authority and the lack of alignment of interests. That seems to be mushrooming and, ultimately, could end poorly for some market participants that are not exercising appropriate control over capital and how it is being managed. The greatest issues appear to be in the property arena. Shared and layered structures continue to be particularly concerning and are spilling into other parts of the property market. With that said, the casualty market by and large is offering greater discipline, though there are a few isolated pockets within casualty that give us reason for pause—two I will call out in particular are habitational and liquor. We are seeing examples of business where rates are being cut by 20%–30%, whereas a 10% cut might have been appropriate. My father used to suggest this kind of behavior turns long-tail lines into short-tail lines. We will see how that unfolds. On reinsurance, we are particularly concerned. Yes, property is eroding rapidly, but casualty never enjoyed the bounce that property got. You can see in our numbers, as Richard alluded to, we are shrinking more quickly on the casualty side than on the property side. Turning to encouraging areas, the broader casualty market overall, with a few exceptions I referenced, remains attractive. We continue to find ways to put capital to work at what we believe will generate attractive returns. In addition to the broader casualty market, there are pockets within short-tail lines that we find attractive; two of those are within the Accident & Health space and private client personal lines. On both fronts, we continue to gain traction. Richard walked us through the results, and I will echo a few comments. Top-line growth is being driven by what we achieve on the insurance front, with growth in the mid-single digits. Much of that is driven by margins we find attractive, and there is also a contribution from rate increases. The rate for the quarter, excluding company contributions, was 3.8%. To be clear, this aligns with what we said last quarter: where we see attractive margin, our priority is to increase count or exposure. We may ease off on the rate increases where incremental margin is lower. This is consistent with our historic approach to cycle management and trying to maximize the opportunity—grow where the margin is. On the loss ratio front, we benefited from a relatively benign catastrophe quarter for this time of year. We tend to stand out when there is significant activity; our approach to managing volatility comes into sharper focus in those periods. On the expense ratio, Rich covered this in detail. We believe we will be able to keep the expense ratio at 30 or better. We are making investments in the organization and continue to lean into them—particularly on the technology and data front, and specifically on AI. AI has generated remarkable activity in the broader economy and our industry. We are believers in making thoughtful investments to create value and generate returns. We recognize our strengths and limits; we will not try to build our own large language model. Our strength is to take existing tools and layer our proprietary approaches on top. We have about 60 laboratories—each of our businesses experimenting with tools and coalescing around the best solutions. Two examples: underwriting workbenches and claims. On underwriting, we are focused on digitalizing activity from intake through quote. Early returns where we have begun to utilize these tools show a 20%-plus uplift in efficiency, and we are confident there is further upside. On claims, we are working toward straight-through processing where appropriate. Approximately 50% of our claims settle for $5,000 or less; there are many cases where a less resource-intensive approach is appropriate. Using technology where appropriate lets us deliver better solutions for claimants more quickly. More to come on both fronts. We are making good progress and are excited about reallocating people's time and leveraging technology to drive improvements. On investments, the business is in a good place, and we have clear sight to an even better spot. Richard mentioned $800 million in operating cash flow in the quarter, up from $700 million in the corresponding period—this growth is driving our investment portfolio's scale. The domestic book yield is 4.8%, and new money rates comfortably beginning with a 5% provide upside. The duration piece Richard flagged is 3.2 years; the average life of our reserves is 3.9 years, so we have room to extend duration when appropriate. There are clouds building in lines weighted toward property; it may get tougher before it gets easier. I think nature is currently lulling the property market into a false sense of comfort. That may continue for some time, and the industry may again learn the hard way. Fortunately, the parts of the market where we participate are not getting cloudy—there is still plenty of opportunity. We continue to lean into those opportunities, whether in casualty or some shorter-tail lines I noted. With that, Kristen, we will open it up for questions, and Richard and I will address topics people would like to discuss.

We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed in to today's call, please press 1 to raise your hand and 1 to withdraw your question. Please stand by while we compile the Q&A roster.

That is one question with how many parts? Chrislyn?

You have one question and one follow-up. Your first question comes from the line of Elyse Greenspan from Wells Fargo. Your line is now open. Please go ahead.

Hi. Good afternoon, and thank you for taking my question. First, I want to express my sympathies to you and everyone at Berkley on the passing of Bill. I know he will be missed. My first question: regarding premium growth and pricing you touched on in your prepared remarks, you have spoken about top-line growth improving as rate slows. As you think about the back half of this year and into 2027, do you expect an incremental slowdown in rate, and how are you expecting insurance growth to behave as pricing changes from here? It can be easier to predict directionally than precisely how quickly it will unfold.

Based on what we are seeing and early returns in July, we are reasonably encouraged on the top line. The month is not done, and nobody knows exactly what tomorrow will bring, but we have many pockets where we are very pleased with the margins available. If the situation warrants it, we have considerable room in the rate to adjust, though we will not do that prematurely. Our goal is to optimize between rate and growth. So long story short, I do not think things will fall off considerably from here, and things can certainly improve from here. For your follow-up on whether reducing pricing will lead to compression on the underlying loss ratio: there are several components, including business mix and how weighting unfolds over time. As we get more comfortable with margins in a business, that could affect the loss ratios we feel comfortable booking. Rate and loss ratio are not exclusive of one another; we may find there was more room in the loss picks than we initially recognized.

Your next question comes from the line of Robert Cox from Goldman Sachs. Your line is open. Please go ahead.

Hi, good afternoon. I wanted to ask about other liability and commercial auto. Looking at your disclosures on pricing, it appears you may not be growing exposure as much in those areas. Can you discuss whether you are seeing more growth in those two lines, or if you are shrinking exposure, and why you don't think it's a good time to grow there?

On other liability, we continue to find opportunities to grow, though there is a rate component. As for auto, we are taking a lot more rate than the top-line figures might suggest, and exposure is coming down considerably. We are combining Berkeley 1 with commercial auto in reporting, and we continue to see opportunity there, which offsets some of the exposure decline. Long story short: commercial auto rates are up a lot, and exposure is declining fairly quickly.

That is helpful. On competition from admitted markets in the E&S products, have you seen any change over the year?

We are seeing it incrementally more. But the bigger challenge tends to be people running around with a pen for someone else; they are paid based on the policy they write rather than the underwriting result they achieve. That is the problem. Could the standard market become more of an issue over time? Certainly possible.

Your next question comes from the line of Michael Zaremski from BMO Capital Markets. Please go ahead.

Good afternoon, and my condolences regarding Bill's passing. On the deceleration in pricing power, would you say it is also coming with a better view of loss cost trend? I know other companies have different views on loss cost trend.

I cannot comment on other companies specifically. What we see is a pretty clear view of how much margin is in the business, and there are places where returns are exceptional. In some cases, backing off rate incrementally to capture more exceptional business is a trade we are willing to make. That can invite re-examination of loss picks we have been carrying for a couple of years to see whether there is more room than initially recognized. Trend is one component among many that go into our analysis. On your question about top-line growth and whether it reflects new means of distribution and accessing different types of risk: the short answer is yes. We remain committed to traditional distribution, but we will also meet clients where and how they want to be met. New distribution channels contribute to growth today and likely will contribute more tomorrow.

As a follow-up: you restated expense ratio guidance. If the distribution methods you referenced come with different expense ratios, would that materially change your expense ratio guidance?

Not at the moment. Richard agrees. We do not see it changing our guidance today.

Your next question comes from the line of Andrew Kligerman from TD Cowen. Please go ahead.

Good afternoon. I had a technical issue earlier, so apologies if this covers ground. First, on prior-year development by accident year, could you share a little color on liability lines and how that played out in the quarter?

I do not have those details here. If you could circle back with Yaron Kinar or Richard after the call, they can provide whatever detail you need.

Understood. You mentioned a 3.8% rate, ex-comp. Did that include exposure or was it purely rate? Could you elaborate on how property and casualty played out, and what loss costs were underneath that work?

We focus on pure rate per unit of exposure—that is how we measure changes: how much more are you charging per unit. If a trucking account has 10 trucks and rate goes up 5%, you get 5% more per power unit. If the account adds trucks but premium only goes up 5%, that's different. What we obsess about is rate per unit of exposure because that drives margins. As for product-line trends and loss-cost moves, that is not something we publish in detail.

Your next question comes from the line of Joshua Shanker from Bank of America. Your line is open. Please go ahead.

Good afternoon. My condolences as well—Berkley was a giant and will be missed. One question: I noticed portfolio duration has nudged up each quarter by about a tenth of a year. Given the higher-for-longer interest-rate environment some expect, can you talk about whether you are intentionally increasing duration to lock in yield, or whether this is simply a narrowing of the gap to the reserves' average life?

It is not a race or a single conscious decision. We are comfortable incrementally nudging duration out to lock in yield for a longer period when appropriate. We were very short at one point and remain short relative to many peers; we are simply adjusting gradually based on where we think rates are headed and our liability profile.

And as a follow-up, historically the ability to earn on float has been a major driver of profits. With higher yields today, is there a risk the industry compromises underwriting margins because the investment returns are attractive, or is that trade-off unlikely?

It depends on how high rates go and how long they stay up. Today, I do not see the industry drifting into cash-flow underwriting. If rates keep rising materially for a long time, it could invite that thinking. Regarding MGUs, while some are responsible operators, generally the model can be flawed, particularly when capital management and underwriting discipline are not aligned. Some of what we observe is simply irresponsible management of capital rather than a rational shift to cash-flow underwriting.

Your next question comes from the line of David Motemaden from Evercore ISI. Please go ahead.

Good evening, and my condolences. On the 3.8% rate, are the areas where you are taking the foot off the gas more on short-tail lines, or is that dynamic happening in casualty as well?

It is much more selective than a broad property versus casualty split. We are using a scalpel, not a cleaver. Our businesses operate with granular views—by subclass and sometimes by state—so pricing actions are quite targeted. We have different positions across classes and geographies based on P&L and margin assessments.

Given the decline in pricing this quarter versus last, do you have any early indicators on retention? That might show up sooner than new business.

In the aggregate, our renewal retention ratio continues to sit around 80%, suggesting the book is quite stable.

Your next question comes from the line of Mark Hughes from Truist Securities. Please go ahead.

Thanks. To clarify, when you say you're leaning in and pursuing opportunities, is that because you can select and price risk directly, or are there limitations in some channels? If you were not pursuing those opportunities, how would you describe pricing in the market overall?

We pursue opportunities where we can underwrite with discipline. Absent our approach, pricing varies dramatically by product line—most pronounced in commercial property. There are isolated pockets within liability that make us pause, but overall it's a fine brush rather than a broad one.

Follow-up on casualty reinsurance: you described more pressure there. Is that impacting the primary market? What is going on in casualty reinsurance?

On the reinsurance side, some are willing to write business at ceding commissions that we find unattractive. Our reinsurance management teams have the expertise and discipline to act appropriately. You will note the growth differential between our gross and net premiums written; we are conscious of conditions in the reinsurance market and what that means for us as a buyer.

Your next question comes from the line of Brian Meredith with UBS. Please go ahead.

Thanks, and condolences. When you talk about rate easing to 3.8%, is there any loosening of terms and conditions that you are seeing or considering? Terms and conditions matter as much as price.

Generally, we are not seeing loosening of terms and conditions. It has been more a rate conversation in our activity. There are, of course, some very aggressive market participants, and we will see how that plays out. For us, maintaining terms and conditions is not an issue today.

Are retail agents trying to keep business in the admitted market and not go to E&S? Is that affecting your E&S business?

If retail agents can place business in the standard market, they often will, because it doubles economics for them compared to splitting commission with a wholesaler. The growth of the E&S market as a percent of the overall market suggests many retail agents have not succeeded in keeping business standard, but agents will try to place in admitted where feasible.

Your next question comes from the line of Tracy Benguigui from Wolfe Research. Please go ahead.

Thank you and condolences. You mentioned there may be more room in loss picks. How many years of experience or how much development information do you rely on to justify lowering picks?

It depends on the product line. Different lines have different tail characteristics. The incurred tail drives how we develop confidence in outcomes, and the time horizon we consider varies by product. There is no single answer across the portfolio.

A quick clarification: you mentioned a 3.9-year duration of your reserves—I'm assuming that is on an undiscounted basis. What would it be on a discounted basis?

I do not have the exact math here. If you follow up with Richard or Yaron after the call, they can give you the precise figure, but it is not radically different. The only consequential area where discounts are applied is on some excess workers' comp; the bulk of our reserves are undiscounted.

One more cycle question: do you think this soft cycle is different than prior cycles in terms of drivers or duration?

This cycle is in some ways radically different and in other ways remarkably similar. It is similar because human emotions—fear and greed—still drive behavior. It is different because product lines have decoupled: they are at different points in the cycle rather than moving in lockstep. That affects how the cycle presents itself. Duration of the cycle depends on how long it takes market participants to recognize unsustainable behavior and respond. Past hard markets were followed by long soft periods; the time it takes for pain to be recognized drives when discipline returns. We saw that in property and at other times in professional liability; I believe the market is on the eve of recognizing similar dynamics in California workers' compensation.

Your next question comes from the line of Andrew Andersen with Jefferies. Please go ahead.

Hi, and thanks. Could you discuss how hit rates or quote-to-bind improvements have been in lines where you've lowered price, and how that compares with expectations? Is there still meaningful room to improve quote-to-bind?

I do not have that quote-to-bind data here. As I mentioned earlier in the call, our renewal retention ratio sits around 80%, which suggests the book is not shifting dramatically and that our colleagues are adjusting to market conditions as appropriate.

Follow-up on workers' compensation: you have previously indicated you are waiting for firmer conditions on comp. Any update on pricing or loss trend?

California is ahead of the rest of the country in the comp cycle. Recent information suggests the state is running at a high accident-year level, which is hard for the marketplace to make work. Historically when comp looks bad, it often ends up worse, which creates catalysts for rate shift. We are seeing early signs of rate movement in California, and the rest of the country appears to be trailing but moving in that direction.

Your next question comes from Meyer Shields with Keefe, Bruyette & Woods. Please go ahead.

Thanks, and good afternoon. Condolences as well. First, you were early in calling out social inflation. Are you seeing any signs that social inflation is tempering, and could that explain smaller rate increases?

We have been focused on social inflation for a long time and it has received regulatory and policy attention in some states. There has been action in certain jurisdictions, but it is too early to quantify the full impact. We are aware of the issue, but cannot yet take credit for a material moderation in social inflation across the industry.

One more: you mentioned a 20% productivity improvement on policy ingestion. Is that 20% more submissions you can look at, or is it measuring something else?

We are getting roughly 20% more throughput—more submissions processed—and converting more business as a result. Early returns show a 20% uplift in efficiency where underwriting workbenches have been implemented, and we expect further improvement over time.

There are no further questions at this time. I will now turn the call back to Mr. William R. Berkley for closing remarks.

Rich, anything you want to add before I share some closing comments? Awesome. Okay. Thank you all very much for tuning in. We appreciate your time and interest in the company. As we pass the 50-yard line here, the business continues to fire on all cylinders. Perhaps what is most encouraging is that when we look out on the horizon, there is nothing we expect that can get in the way of us continuing to generate outstanding returns. Thank you again for your time. Have a good evening.

This concludes today's call. Thank you for attending. You may now disconnect.